Essays on extreme returns and investor behavior

This dissertation focuses on studying extreme returns and investor behavior. Chapters 2 and 3 explore the link between extreme returns and expected stock returns, considering different investor sentiments. Chapter 4 delves into whether institutional or retail investors primarily drive extreme gains. Chapter 2 notably contributes to the literature by being the first to investigate the relationship between Value-at-Risk (VaR) and expected stock returns during periods of high and low investor sentiment. Chapter 3 reveals a negative correlation between novel lottery proxies and expected stock returns in China, a relationship not accounted for by other variables. In contrast, in the U.S., this negative impact on expected stock returns is attributable to MAX and VOL. Chapter 4 discovers that large transactions, contrary to popular belief, initiate the MAX effect. These large transactions occur early in the trading day, prompting subsequent retail trading and the creation of the MAX day. Following the MAX day, institutional trading subsides more rapidly than retail trading.